April 11, 2009

Burning the Ships

Marshall
Phelps, Microsoft VP for IP policy and strategy, writes a first-person account
of Microsoft coming to Jesus about patents in the self-serving book
Burning the Ships. It's a corporate mea culpa sleight of hand, a
pseudo-folksy self-absorbed Business Week as People magazine for business people
book. Americans love to read fiction posing as fact about naughty boys coming
clean and making good. What Phelps effects is classic propaganda, by admitting
past mistakes and claiming redemption, though neither accurately so, and never
explaining the meaning of the transformation when Microsoft retains its same old
patterns of behavior. In other words, what Phelps never does is cut the crap.

For years, Microsoft had been on the defensive, beset on all sides by
antitrust suits and costly litigation, and view by many in the technology
industry as a monopolist and a market bully.

Phelps gives a nonsensical softball pitch as to motivation for
transformation.

Underlying Microsoft's desire for change was its recognition that
technology development had become too widely dispersed and heterogeneous,
the pace of innovation too rapid, and the competition for markets and
customers too multifaceted and demanding for any one firm to go it alone
anymore.

Translation: being a corporate autistic bully wasn't working so well anymore.
Microsoft was trying to butt into new markets, failing on its own, and getting a
glimmer that no one wanted to do business with Microsoft if they could possibly
avoid it.

As Phelps succinctly put it in a section title: "we need relationships."

Before Phelps, there was "a broader insularity and asocial outlook within
Microsoft's corporate culture." Leadership starts at the top. Phelps is
referring to the mindset of Bill Gates. Thank goodness Phelps came on board to
enlighten Microsoft.

Before Phelps, "it was not uncommon at the time in Silicon Valley to hear
Microsoft's attitude towards startups described by critics in three words: 'buy
or crush.'" Why did Microsoft try to transform itself from being a relentless
sociopath to a tolerable sociopath? "Not simply... to be liked rather than
disliked, but because better relations with the Valley could have great
strategic value for the company."

Phelps recalls, inaccurately, the Stac disc compression case in the mid
1990s. Stac sucessfully sued Microsoft for patent infringement. Phelps has
Nathan Myhrvold, erstwhile (1986-1999) chief technology officer, now of
Intellectual Ventures, saying, "I was totally shocked. I remember asking our
attorneys, 'They can do this? They can just buy a patent and then use it
retroactively against us?'"

In 1993, Microsoft released MS-DOS 6.0, which included a disk compression
program called DoubleSpace. Stac executives were outraged, as Microsoft had
previously been in discussions with Stac to license its compression
technology, and had discussions with Stac engineers and examined Stac's code
as part of the due diligence process. Stac, in an effort led by attorney
Morgan Chu, sued Microsoft for infringement of two of its data compression
patents, and won; in 1994, a California jury ruled the infringement by
Microsoft was not willful, but awarded Stac $120 million in compensatory
damages, coming to about $5.50 per copy of MS-DOS 6.0 that had been sold.
The jury also agreed with a Microsoft counterclaim that Stac had
misappropriated the Microsoft trade secret of a pre-loading feature that was
included in Stacker 3.1, and simultaneously awarded Microsoft $13.6 million
on the counterclaim.

While Microsoft prepared an appeal, Stac was able to obtain a preliminary
injunction from the court stopping the sales of all MS-DOS products that
included DoubleSpace; by this time Microsoft had already started shipping an
"upgrade" of MS-DOS to its OEM customers that removed DoubleSpace. By the
end of 1994, Microsoft and Stac settled all pending litigation by agreeing
that Microsoft would make a $39.9 million investment in Stac Electronics,
and additionally pay Stac about $43 million in royalties on their patents.

Sucking up, Phelps casts Bill Gate's 1976 public tirade against open source
as visionary. "Bill was one of the relative few who understood not only the
importance of intellectual property to software development, but the defining
role that software as an independent force would play in the emerging knowledge
economy."

What, of course, isn't in the book is how repeatedly clueless Microsoft has
been about Bill's supposed "vision" of intellectual property. Example. Less than
a decade ago, Microsoft had the chance to buy the Intertrust patent portfolio.
They were well aware of the patents, because they were being sued over them. But
they couldn't bring themselves to do anything but fight on. Sony stepped in and
bought the portfolio. Microsoft ended up paying over a hundred million more to
settle the Intertrust dispute with Sony than Sony paid for the patents (and
which Microsoft could have paid). Microsoft thought they could crush Intertrust.
But facing down Sony was a different story.

Phelps on his corporate brethren, beginning with the observation that -

IP and other intangible assets today account for upwards of 80 percent of
the market capitalization of all public companies in the world.

In other words, the greed for investment returns is such that punters
are willing to bet on dreams of growth, jacking the price of stocks orders of
magnitude higher than any reasonable estimate of tangible worth.

But of course such an insight is far beyond Phelp's feeble mind. The big rube
takes it at face value. Here's his point -

[L]et's just be honest here - the dirty little secret of corporate
governance today is that the overwhelming majority of CEOs, chairmen, and
corporate board members devote literally zero thought and effort to the
management of their firms intellectual property assets.

There's the disconnect that proves my above observation. If corporate heads
are clueless about IP, tagging grotesquely bloated stock prices as accounting
for "intangible assets" is nothing more than a hallucination.

[P]urchasing of patent rights for assertion against deep-pocked firms...
can be an especially egregious practice, bordering on extortion, when
committed by firms that don't produce any products-the infamous "patent
trolls."

That goes for inventors too. Trust me on that. I'm living it. When I write
the story of my patent infringement case against Microsoft, factually backed by
court documents, you'll know that lies and hardcore brutality, Bill Gates
legacy, are still the beating heart of Microsoft. Prove me wrong, Marshall
Phelps.

Posted by Patent Hawk at April 11, 2009 1:36 AM
| Patents In Business

Comments

IIRC, the threat of IBM's OS/2 had something to do with MS flip flopping its position on patents